Global pharma majors prefer emerging drug makers over Indian biggies

Multinational drug manufacturers such as Pfizer and DSM are increasingly getting into contract manufacturing alliances with emerging bulk drug makers in the country, bypassing established players such as Ranbaxy and Dr Reddy's.

Hikal, an upcoming Indian manufacturer and contract manufacturing company, today said that it has entered into a long-term agreement for the supply of active pharmaceutical ingredients (API) to the largest pharma company Pfizer for lifestyle drugs.

A few weeks ago, DSM Anti Infectives (DAI), a part of the Netherlands-based DSM Group, signed a strategic partnership with the Mumbai-based Arch Pharmalabs to manufacture generic APIs.

Arch, which is targeting a turnover exceeding Rs 500 crore in 2007-08, up from the Rs 362 crore in the last financial year, is in talks with some global drug companies for drug supply, said managing director Ajit Kamath.

Arch recently acquired Avon Organics, thereby adding an US Food and Drug Administration (FDA) manufacturing facility with an eye on orders from the US and European markets for its specialty products.

Industry sources cite two other recent cases in the contract manufacturing trend: The US-based Sagent Pharmaceutical's pact with Strides Arcolab of Bangalore to jointly develop, supply and market about 25 injectable products for the US market, and another agreement by the Mumbai-based Indoco Remedies with Amneal Pharmaceuticals, the New Jersey-based generic drug maker, for the supply of ten ophthalmic products for the American market.

The global manufacturing outsourcing opportunity is estimated at $20 billion (about Rs 80,000 crore) and is expected to reach $31 billion (about Rs 124,000 crore) by 2010. About 40 per cent of outsourcing demand is for APIs, a recent CII-KPMG report estimates.

Global drug majors such as Merck, Eli Lilly, Sanofi-Aventis and Pfizer have already announced a cut in manufacturing as they look at outsourcing to reduce the production costs.

"Multinational companies have more confidence in dealing with players such as Arch or Hikal, which follow non-infringement and exclusive supply arrangements with the big pharma companies. As against this, most of our leading generic companies act as suppliers of APIs and at the same time sell their own generics in the US or Europe. I reckon this as a major reason for big pharmas looking at companies such as us," said Ajit Kamath, the head of Arch Pharmalabs.

"We do not compete with our partners and that is the reason for us becoming preferred partners. The agreement will have a substantial impact on our pharmaceutical business in the coming years," said Jai Hiremath, vice-chairman and managing director of Hikal.

In one way or the other, all pharmaceutical majors have an India plan in the emerging global pharmaceutical scenario.

India has nearly a hundred FDA approved facilities in India and this is a major reason for global pharma companies to look at the country, Shailesh Gadre, managing director, ORG-IMS, said in a recent interview.

A majority of the US FDA-approved facilities belong to upcoming companies, specialising in specific therapeutic categories, sources point out.

Large spare capacity and aggression allow these companies to offer products at much lower margins than established Indian generic companies, an industry expert said.